Govt will argue for lowering of rates by RBI: FM

April 02, 2013 15:23 IST

Government will continue to argue for lowering of interest rates by Reserve Bank in the backdrop of softening of headline inflation and the need to promote economic growth, Finance Minister P Chidambaram on Tuesday.

"The RBI has to weigh the fact that headline inflation has come down yet consumer price inflation is sticky. . . it has to keep Current Account Deficit in mind before it lowers interest rate.

"But government is always pro growth and the government will always argue for lower interest rates", he said in an interview to CNBC TV18 in Tokyo.

RBI is scheduled to announce the monetary policy for the current financial year on May 3 during which it will take a call on interest rates keeping in view the inflation and other macro-economic parameters like growth rate, industrial production etc.

Chidambaram, who is here to woo investors, said that although inflation based on movement in wholesale prices has come down, the retail inflation in double digit has continued to be a cause of concern.

"Core inflation has indeed come down.

"Headline inflation has also come down but the consumer price inflation is still very sticky at double digit and that's what affects the people", the minister said.

While the WPI inflation softened to 6.62 per cent in January, the Consumer Price Index inflation firmed up to 10.79 per cent in the same month.

The more worrying aspect, however, is the 2.5

per cent contraction in output of the eight core sector industries during February. It will have implications for the industrial output the figures for which are to be released next week.

Chidambaram said insurance, banking and asset management companies have shown keen interest to investment in India and they were welcome.

"Insurance companies, large asset management companies are very keen to invest in India. I think there is great deal of interest among banks and insurance companies to gain a footprint in India, we welcome all of them.

"We have very transparent rules and in the financial sector there is a lot room for new players so my impression is that they are extremely positive about India. India is a safe destination", Chidambaram said.

On the suggestion for devaluing rupee to slowdown imports, he said, "that may not work in a country that is dependent on oil imports. “We import some coal, we import capital goods, we import edible oil, pulses.

"These are very essential imports and I think that the fact that the rupee depreciation may not slowdown imports. Infact, it may lead to exact opposite result.

“Our import bill will go up in rupee terms.

“I am not sure whether depreciating the currency is the answer to the Current Account Deficit ", the Minister added.

The CAD, which is the difference between inflow and outflow of foreign exchange, shot up to a historic high of 6.7 per cent during the quarter ending December mainly on account high imports of oil and gold.